Tim Westergren: Pandora is replacing AM/FM radio

In a keynote interview at MIDEM over the weekend, Pandora CEO Tim Westergren talked to Daniel Glass, Founder and President of Glassnote Entertainment Group. The conversation touched on Pandora’s plan to build an on-demand service to complement its market-leading streaming radio platform, and the company’s support of the music industry. Along the way, Westergren reiterated his company’s explicit mission to replace broadcast radio, and why that’s a good thing for listeners and musicians.

Pandora vs. Broadcast

“If I were an artist I would push for the migration of listening from broadcast to the web.” –Tim Westergren, CEO and Founder, Pandora

Westergren’s most impassioned talking points were about Pandora’s founding mission to assist musicians (Westergren spent his 20s playing on the road with rock bands), the extent to which Pandora supports the music industry, and misunderstandings about royalty payments.

On that last point, Westergren explained something that often gets lost in musician advocacy which criticizes Pandora: The platform competes with radio, which doesn’t pay performer royalties at all in the U.S. “Pandora is a radio product,” he said. “It is replacing a medium — AM/FM radio, which does not compensate artists at all (in the U.S.).”

He noted that Pandora’s increase in listening hours comes mostly from broadcast radio, and offered a calculation of what that shift in market share means to musicians. “Every one percent of market share that moves from broadcast radio to Pandora creates $60-million of annual revenue to the industry.”

Westergren also reminded the audience that Pandora is a one-to-one medium, compared to terrestrial’s one-to-many linear platform. So, a single stream’s micropayment on Pandora would equate to over a thousand dollars in royalties at a top radio station, if radio paid performance royalties at all.

“Pandora is the music industry’s ad sales team.” –Tim Westergren

In the course of promoting his company’s payments to the music industry, Tim Westergren divulges some numbers related to Pandora’s structure: “We have 2,200 employees. About half of them do nothing but work on advertising selling. It’s a massive engine with about 550 [direct] ad sales people. We’re going to generate north of $600-million in revenue [to the music industry] this year, more than the entire broadcast radio business pays.”

The On-Demand Service

There is a great deal of curiosity about the on-demand subscription music service Pandora plans to build this year. Time Westergren spoke of differentiating the product from existing competitors — beyond mere app design.

Different price points could be one way: “We will hopefully have multiple tiers — not just the $10 level, but something lower as well. There is some small segment of the population that will pay $120 a year. But we think there’s a much bigger audience that will pay for something less, for mid-level features. That’s our thesis.”

At the same time, he said the basic freemium/subscription equation will remain unchanged: 30% lean-in on-demand subscribers, and 70% lean-back radio listeners. About 4-million of Pandora’s 80-million monthly listeners (100-million quarterly listeners) pay $5/month to eliminate advertising in a plan that remains a lean-back experience.

The business rationale driving the on-demand vision is simple: Keep the lean-back listeners when they want to lean in. When Pandora users hear a song they love, and want to hear it again, they mostly go to YouTube, according to Tim Westergren. “We stream more hours of music every month than YouTube does,” he observed, noting an average of 23 hours per month. So, the on-demand mission is to capture listening that Pandora now loses to YouTube.

“We stream more hours of music every month than YouTube does.” –Tim Westergren

I’m left wondering what Mr. Westergren believes happens to the large sums of money AM/FM stations pay to BMI, ASCAP, and SESAC. No compensation? I hardly think so. Is he trying to create a false reality that benefits him?

Brent — BMI, ASCAP, and SESAC pay songwriters and composers. The organization which collects royalties for record labels is called SoundExchange. AM/FM is legally exempt from paying those royalties in the U.S., unlike most other countries. Please be informed! And this is the site to get that information. Thanks for visiting. Please visit every day, and/or subscribe to our newsletter.

Very interesting piece. I don’t know what Pandora pays to artists (meaning the record companies) for on-demand, but clearly on-demand can hurt record sales. But “lean-back” (or pure-play Internet) is an alternative to the 16 unit spot breaks and horrible programming provided by corporate broadcast radio today. The continued free ride corporate broadcast radio receives is inexcusable. If artists want a cause, they should demand an answer to why pure play Internet radio which actually plays their music, was destroyed by the stroke of the pen and corporate broadcast radio who plays the same 500 songs over and over again pays nothing.

No, not total bulkshit, but slightly misleading. Payments made by radio to ASCAP, BMI and SESAC are paid out by the PRO’s to songwriters and publishers for the use of the musical composition. Performers and labels receive nothing for the sound recordings used by radio in the United States which exempts terrestrial radio from payments for sound recordings — uniquely among civilized countries with advanced copyright laws. Pandora and all non-interactive webcasters are required to pay for use of both the musical composition and the sound recording. If you are an artist and receiving payments from ASCAP, BMI or SESAC that include terrestrial radio, you are receiving income as a writer, not as performer.

And yet labels spend millions to get AM/FM airplay, and they’re fighting Pandora for more money and control. A paradox. Ask the artists who receive endless airplay from FM radio which they prefer: Royalty or airplay. Almost all say the latter. Airplay will get them more money in direct sponsorships and more attendees at concerts than any amount of streams on Pandora.

It is interesting to note, that while terrestrial radio pays fees to ASCAP, BMI & SESAC, we also have to pay fees for streaming, so we’re not getting off completely without paying. Although, as I understand it, we pay less for streaming than digital only platforms.

Thanks jenny, but you don’t need Billboard. 🙂 The site you’re on right here carries the leading coverage of music royalties. AM/FM does *not* pay label royalties — it is exempt by U.S. law. Legislation has been introduced in Congress to change this, but it’s at a standstill, and opposed by AM/FM lobbying. AM/FM does pay the publishing societies (songwriters, composers, sheet music companies), but not record labels, and/or musicians who own their own labels. Those musicians get songwriter money if they write their own songs. They do *not* get paid for use of the recordings. Pandora pays ALL of that. The confusion in this thread about how U.S. royalties work is an illustration of misplaced anger at Pandora. Here at RAIN News, we explain how things work over and over and over, and are glad to do so. Please stay with us.

Of course Pandora pays artists and labels because their provides digital quality audio that has caused consumers to stop buying music. The payments were designed to help make up for that loss. OTA radio isn’t digital, and doesn’t replace buying music. In fact, we work in partnership with labels and artists to promote the legal purchase of music and concert tickets.

Pandora does not explicitly compete with music stores. Pandora competes with radio. As a non-interactive service, Pandora does not allow precise access to songs. You cannot decide to listen to “Uptown Funk” — you can only create a generalized station. Interactive services like Spotify, Rhapsody, and Deezer compete more directly with the music ownership model, and seek to replace it with the music access model. That’s really a different business from Pandora’s radio model. (But Pandora is building an on-demand service, too.)

“Pandora does not explicitly compete with music stores.”
What music stores? They were put out of business by digital media. Read the debate in Congress about the digital copyright act, and the reason why digital media pays a royalty to labels and artists. It’s to compensate them for losses from sales.

Yes, music purchasing has declined due to music streaming, but it’s on-demand streaming which eats into music stores — YouTube, Spotify, and SoundCloud probably being the main drivers of this trend. In this thread we’re talking about Pandora (non-interactive by legal definition), which targets and fulfills a different user scenario. Young Millennials are entering adulthood with no conception of music as a paid product, because YouTube is a free on-demand platform, and Spotify is the global leader in paid music access. Each one is a celestial jukebox with an immense catalog. Pandora is personalized radio, not on-demand music access — a different sort of business with a different user experience.

“Pandora is personalized radio, not on-demand music access”
Users don’t see a distinction. Streaming is streaming, and it replaces buying. As I said, the royalty was meant to compensate labels and artists for lost sales, which is exactly what has happened in the past 15 years.

Tim Westergren has a problem with the truth. His sophistical pandering of the metrics he distorts and his continued employment of misdirection tactics make me wonder if it all stems from a desire to be spanked … by all the stockholders that have been bilked. Be careful what you wish for … and consider the sources. The only misplaced anger and confusion in this thread should be at those perpetuating the myth that Pandora is misunderstood and/or readers don’t understand the value of free publicity and promotion from an industry with enough reach to get results for the recording artists … AM/FM Radio.

David — no argument about radio’s well-documented audience reach. However, its musical reach is extremely limited. So, artists who don’t fit into broadcast categories, streaming is an opportunity. The fact that it pays for use of recordings is an obvious difference that shouldn’t be discounted. There is a universe of artists for whom AM/FM is inaccessible, and it refuses to pay. Streaming is accessible, has a growing audience reach, and does pay.

I grew up on classic 70’s and 80’s soft rock and prefer that over much of today’s music. What little I do listen to from today are the Adele/Norah Jones type performers (i.e., the ones that just sing and don’t dance around in sexy outfits)

The iTunes program includes an internet radio directory. It’s a listing of stations from around the world. For the kind of music I’m into, I found a few stations under the Adult Contemporary listings. I added them to my iTunes library under a playlist that I called Favorite Radio Stations. The stations I found concentrate on playing ballads.

Amongst artists I like, are some European adult pop singers, such as Laura Pausini and Lara Fabian. They are similar in style to Celine Dion (i.e., power ballad singers). Because of this, some of my top stations that are in my playlist are European streams.

An example is Slowly Radio (www(dot)slowyradio(dot)com). They include ballads by European artists in addition to artists well known to Americans. Some of the artists whose ballads they play are Celine Dion, Whitney Houston, Mariah Carey, Seal, Billy Joel, The Carpenters, Phil Collins, Michael Jackson, Laura Pausini, Richard Marx, Toni Braxton, Adele, Boyz II Men, Enrique Iglesias, Foreigner, George Michael, John Legend, Michael Bolton, Norah Jones, Paul Young, Sting, Sade, Beyoncé.

One I like better than that one is Heartbeat FM. (www(dot)heartbeatfm(dot)net). It’s an Irish station playing love songs. Most of the artists are well known to American listeners and most of the songs are from the 1970’s, 1980’s, and 1990’s. The station tends to be a bit more picky about what current songs they add to their playlist. I like it because they play one of my favorite 90’s boy bands, Boyzone.

It’s in England. The station has a few currents (Adele’s “Hello” song was played a few minutes ago) but the primary concentration is 70’s and 80’s soft hits, some recognizable to American listeners, others recognizable to UK/European listeners.

“There is a universe of artists for whom AM/FM is inaccessible, and it refuses to pay.”
I may misunderstand what you’re saying, but AM/FM doesn’t “refuse to pay.” Several AM/FM companies (including iHeart) DO pay labels and artists at labels that negotiate. The foreign owned labels refuse to negotiate. But some US based labels have negotiated, and they are getting paid.

That is a correct point, and I’m glad you brought it up. There are select negotiated deals between label groups and radio groups. We don’t know how those payment agreements compare to the statutory royalty rates set by the Copyright Royalty Board to streaming radio — in other words, how much the labels/artists receive. There is also some kind of reciprocity in those deals — the labels provide (undisclosed) value back to the stations. As a matter of law, U.S. radio stations are oddly exempt from paying label royalties, unlike most other countries.

“As a matter of law, U.S. radio stations are oddly exempt from paying label royalties, unlike most other countries.”
Nothing odd about it. There are lots of differences between this country and the rest of the world. If you familiarize yourself with broadcast law and the FCC, you’ll see that there are lots of differences. The US is the only country that has payola laws. So no, there’s nothing odd about it, unless you look at it in a vacuum, which is how the music industry sees it.

“Pointing to radio’s past corruption might not be the best way to illustrate its unusual legal exemption from royalties.”
The exemption pre-dates the corruption, so it should be obvious that wasn’t what I was saying. However payola isn’t illegal for digital media. Doesn’t mean it doesn’t happen. Just that its not illegal.

The point is there are LOTS of unique laws in the US, not just this one. Radio stations have a lot of legal obligations that Pandora doesn’t have to deal with. No one restricting how many stations they can own in an area. No federal obscenity laws. No laws restricting their signal.

Pointing to Radio’s past corruption is probably a good way to “bring to light” to the corruption (Payola) that is occurring in the music streaming space. Another revenue source? Radio continually attempts to clean up its act, due mostly to the laws we have enacted in this country. Haven’t you noticed why Radio detractors want to alter those laws at the behest of their surrogates and in the name of aspiring artists? Just like your judgmental statement about Radio’s unusual legal exemption from royalties, often it is what we don’t do that matters most! By the way, that unusual legal exemption existed long before the internet, so the term unusual should be suspect. Do you really believe that aspiring recording artists are best served in an environment of corruption? You appear to couch music streaming and its errant behaviors (Payola) with the myth of freedom and opportunity. The need for transparency is evidenced by needed third party verification for the big player ecosystems and their errant behaviors concerning advertising in the internet space. Ad fraud and ad blocking are now a major concern for protecting advertisers. We have a long way to go in cleaning up the internet streaming space. We can learn from Radio. We should not advocate adopting the same laws and mistakes made by our counterparts in other countries (i.e.) Johnny jumps off the bridge, so should we? As stated previously, “the value of free publicity and promotion from an industry with enough reach to get results for recording artists”, is critical for exposure. Reach + Frequency = Results. Most new music discovery still occurs via Radio. The question of accessibility for new artists lies in the eye of the beholder. HD Radio and its additional digital channels and programming also offer more opportunity for new artists. Streaming is, and will be for the foreseeable future, an important avenue for aspiring new artists … until the next best thing comes along.

FYI, my apology for omitting the “r” from the derivation of the word sophistry in previous correspondence.

Speaking of ad blocking, does anyone know if that’s available for smart phones? I don’t want to get a virus or something on my phone while I’m using my browser or other apps that use intrusive advertisements.

As you know, there is a lot of discussion regarding the fair payment
of writers and performers of music
that is being streamed – whether for a very small price per stream or for free.

At Dynamic, where we have many, many recordings available on CD Baby,
we feel that
our income has been adversely affected by the policies in place right
now. A look at our earnings (and therefore the earnings of CD Baby too!)
demonstrates that through the first quarter of 2016, our revenues are
only at 67% of the same quarter last year.
2015 was down slightly from 2015, and I’m guessing that if we had not
added additional titles during 2015, the difference
may have been more significant. If this trend continues through
2016, being down 33% in CD Baby income is not good.

And we’re only one company on CD Baby – if other musicians, record
companies, independent performers, etc. are seeing the
same trend, it’s a serious loss in income to people who are not being
compensated properly for streamed and free music.

We believe CD Baby should unite with the others who have taken a
stand to gain reasonable payment for artistic endeavors.

Spotify payment to Dynamic Recording:

63 streams – $.06 cents. This is a major rip off.
Radio stations pay us 8.5 cents per play.

cdBaby, iTunes, amazon all pay us well.
Smart music buyers love the free music and do not purchase or download.
Many top Artists have pulled there music from streaming, because their sales
and downloads have dried up.

I also second what Jill said. People have multiple reasons for not buying CD’s anymore. It’s not just about free music. For me, the reason is too much clutter. That’s why I’ve switched to downloads, most of which are singles. I only buy a CD if I’m a hard core fan of the artist.

For streaming services, I’m more supportive of iTunes and Amazon and Google Play because they incorporate an option to buy music alongside their streaming programs.